The LLC Dilemma: Included In or Excluded From Workers Comp Benefits?

workers compensation insuranceIn most states, Executive Officers of Corporations (Incs, S and C Corporations), are automatically included for workers compensation coverage unless they reject benefits in writing. LLCs (Limited Liability Corporations) are a slightly different form of a corporation in that money for taxation flows differently through a LLC vs an S or C corporation.  Executives in LLCs are called Members and/or Managers which is different lingo in the treatment of executive officers vs an S or C corporation.  On the street, members and managers look like executive officers and often have titles of President, CFO, etc. under LLCs, but whether they are automatically included or not for workers comp varies dramatically from state to state based on the Statute for Coverage in that State.  Below are a couple of state summary of workers compensation coverages related to executive officers and managers/members of LLC.  Compare the Kentucky and Indiana coverages to Georgia’s.  Kentucky and Indiana excluded Managers and Members of LLCs from coverage but Georgia automatically includes them.

Kentucky

Sole Proprietors, Partners, Executive Officers, and Limited Liability Companies (LLCs)

  • Sole proprietors, qualified partners, and qualified LLC members are not covered unless they specifically elect coverage (342.012). A qualified partner or a qualified member is defined in the Act as being an individual who has entered into either a meaningful partnership agreement or a meaningful operational agreement related to an LLC. Further, the document must evidence that the partner or member will substantially participate in the profit and loss of the organization and has made some contribution to the organization that entitles the individual to such participation (342.012(3)).
  • Officers of a corporation are covered but may elect to be exempt.

Indiana

Sole Proprietors, Partners, Executive Officers, and Limited Liability Companies (LLCs)

  • Sole proprietors and partners are not covered but may elect to be covered by serving a written notice on the insurer and the board if they are actively engaged in the sole proprietorship or partnership business (22–3–6–1(b)(4 & 5)). Members and managers of LLCs also are not covered unless they specifically elect to be covered if they are actually engaged in the LLC business. Coverage is activated by serving a written notice on the insurer and on the board (22–3–6–1(b)(9)). Executive officers of a governmental subdivision or a religious, charitable, educational, or other nonprofit corporation are not covered unless they are specifically included in the insurance contract. However, executive officers of other types of corporations are covered (22–3–6–1(b)(1 & 2)). An officer of a corporation who is an employee of the corporation under the Act or who has any interest in the corporation may elect not to be covered. The officer must provide written notice of this election to both the board and the corporation’s workers compensation insurer. The officer is not deemed to be excluded until the notice is received by the board and the insurer (22–3–6–1(b)(1)).

Georgia

Sole Proprietors, Partners, Executive Officers, and Limited Liability Companies (LLCs)

  • Officers of corporations and members of LLCs are covered but may elect to be exempt by giving written certification to the insurer or to the state board when there is no insurer. Corporate officer and LLC member exemptions are limited to no more than five and require that the exempted officers be identified by name as well as by office held. Exempted LLC members must be identified by name. The exemption may be revoked at any time by the officer or member of the LLC by sending such certification to the proper authority (34–9–2.1).
  • Sole proprietors and partners who are actively engaged in the operation of the business and whose employees qualify for coverage may elect to be covered (34–9–2.2).

If your business is a LLC, do you, as a manager or member, think you have workers compensation coverage automatically or not? Has your agent discussed with you that if you are automatically excluded for coverage in your state under a LLC, how to include you for coverage?  The time to find out if you are covered is not after you as a manager or member were hurt on the job.   AssuredPartners NL’s property and casualty experts can analyze your coverage, point out advantages and disadvantages of including or excluding you from coverage under a LLC and set in place the best plan that fits your needs. Let us help.  For more information, visit AssuredPartners NL Property & Casualty.

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